A Dynamic Theory of Organizational Knowledge Creation
Author(s): Ikujiro Nonaka
Source: Organization Science, Vol. 5, No. 1 (Feb., 1994), pp. 14-37
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A
Dynamic
Theory
Knowledge
of
Organizational
Creation
IkujiroNonaka
Institute of Business Research, Hitotsubashi University, Kunitachi, Tokyo, Japan
I
recommend this paper to Organization Science readers because I believe that it has the potential
to stimulate the next wave of research on organization learning. It provides a conceptual
framework for research on the differences and similarities of learning by individuals, groups, and
organizations.
Arie Y. Lewin
Abstract
This paper proposes a paradigmfor managingthe dynamic
aspects of organizationalknowledge creating processes. Its
central theme is that organizationalknowledge is created
through a continuous dialogue between tacit and explicit
knowledge.The natureof this dialogueis examinedand four
patternsof interactioninvolvingtacit and explicitknowledge
are identified. It is argued that while new knowledge is
developedby individuals,organizationsplay a criticalrole in
articulatingand amplifyingthat knowledge. A theoretical
frameworkis developed which provides an analyticalperspective on the constituent dimensions of knowledge creation. This frameworkis then applied in two operational
models for facilitatingthe dynamiccreation of appropriate
organizationalknowledge.
(Self-Designing Organization; Teams; Knowledge Conversion; Organizational Innovation; Management Models)
1. Introduction
It is widely observed that the society we live in has
been gradually turning into a "knowledge society"
(Drucker 1968; Bell 1973; Toffler 1990). The ever increasing importance of knowledge in contemporary
society calls for a shift in our thinking concerning
innovation in large business organizations-be it technical innovation, product innovation, or strategic or
organizational innovation.' It raises questions about
how organizations process knowledge and, more importantly, how they create new knowledge. Such a shift
in general orientation will involve, among other things,
a reconceptualization of the organizational knowledge
creation processes.
14
ORGANIZATION SCIENCE/
Vol. 5, No. 1, February 1994
The theory of organization has long been dominated
by a paradigm that conceptualizes the organization as a
system that 'processes' information or 'solves' problems. Central to this paradigm is the assumption that a
fundamental task for the organization is how efficiently
it can deal with information and decisions in an uncertain environment. This paradigm suggests that the solution lies in the 'input-process-output' sequence of
hierarchical information processing. Yet a critical problem with this paradigm follows from its passive and
static view of the organization. Information processing
is viewed as a problem-solving activity which centers on
what is given to the organization-without due consideration of what is created by it.
Any organization that dynamically deals with a
changing environment ought not only to process information efficiently but also create information and
knowledge. Analyzing the organization in terms of its
design and capability to process information imposed
by the environment no doubt constitutes an important
approach to interpreting certain aspects of organizational activities. However, it can be argued that the
organization's interaction with its environment, together with the means by which it creates and distributes information and knowledge, are more important when it comes to building an active and dynamic
understanding of the organization. For example, innovation, which is a key form of organizational knowledge
creation, cannot be explained sufficiently in terms of
information processing or problem solving. Innovation
can be better understood as a process in which the
organization creates and defines problems and then
actively develops new knowledge to solve them. Also,
innovation produced by one part of the organization in
1047-7039/94/0501/0014/$01.25
Copyright ? 1994. The Institute of Management Sciences
IKUJIRO NONAKA
Dynamic Theoryof Organizational Knowledge Creation
turn creates a stream of related information and
knowledge, which might then trigger changes in the
organization's wider knowledge systems. Such a sequence of innovation suggests that the organization
should be studied from the viewpoint of how it creates
information and knowledge, rather than with regard to
how it processes these entities.
The goal of this paper is to develop the essential
elements of a theory of organizational knowledge creation. In the sections which follow, the basic concepts
and models of the theory of organizational knowledge
creation are presented. Based on this foundation, the
dynamics of the organizational knowledge creation
process are examined and practical models are advanced for managing the process more effectively.
2. Basic Concepts and Models
of Organizational
Knowledge Creation
The following subsections explore some basic constructs of the theory of organizational knowledge creation. They begin by discussing the nature of information and knowledge and then draw a distinction
between "tacit" and "explicit" knowledge. This distinction represents what could be described as the
epistemological dimension to organizational knowledge
creation. It embraces a continual dialogue between
explicit and tacit knowledge which drives the creation
of new ideas and concepts.
Although ideas are formed in the minds of individuals, interaction between individuals typically plays a
critical role in developing these ideas. That is to say,
"communities of interaction" contribute to the amplification and development of new knowledge. While
these communities might span departmental or indeed
organizational boundaries, the point to note is that
they define a further dimension to organizational
knowledge creation, which is associated with the extent
of social interaction between individuals that share and
develop knowledge. This is referred to as the "ontological" dimension of knowledge creation.
Following a consideration of the two dimensions of
knowledge creation, some attention is given to the role
of individuals and, more specifically, to their "commitment" to the knowledge creating process. This covers
aspects of their "intention," the role of autonomy, and
the effects of fluctuations or discontinuities in the
organization and its environment.
Next, a "spiral" model of knowledge creation is
proposed which shows the relationship between the
ORGANIZATION SCIENCE/VO1.
5, No. 1, February 1994
epistemological and ontological dimensions of knowledge creation. This spiral illustrates the creation of a
new concept in terms of a continual dialogue between
tacit and explicit knowledge. As the concept resonates
around an expanding community of individuals, it is
developed and clarified. Gradually, concepts which are
thought to be of value obtain a wider currency and
become crystalized. This description of the spiral model
is followed by some observations about how to support
the practical management of organizational knowledge
creation.
2.1. Knowledge and Information
Knowledge is a multifaceted concept with multilayered
meanings. The history of philosophy since the classical
Greek period can be regarded as a never-ending search
for the meaning of knowledge.2 This paper follows
traditional epistemology and adopts a definition of
knowledge as "justified true belief." It should be noted,
however, that while the arguments of traditional epistemology focus on "truthfulness" as the essential attribute of knowledge, for present purposes it is important to consider knowledge as a personal "belief," and
emphasize the importance of the "justification" of
knowledge. This difference introduces another critical
distinction between the view of knowledge of traditional epistemology and that of the theory of knowledge creation. While the former naturally emphasizes
the absolute, static, and nonhuman nature of knowledge, typically expressed in propositional forms in formal logic, the latter sees knowledge as a dynamic
human process of justifying personal beliefs as part of
an aspiration for the "truth."
Although the terms "information" and "knowledge"
are often used interchangeably, there is a clear distinction between information and knowledge. According to
Machlup (1983), information is a flow of messages or
meanings which might add to, restructure or change
knowledge. Dretske (1981) offers some useful definitions. In his words:
Information is that commodity capable of yielding knowledge,
and what information a signal carries is what we can learn
from it (Dretske 1981, p. 44). Knowledge is identified with
information-produced (or sustained) belief, but the information a person receives is relative to what he or she already
knows about the possibilities at the source (ibid, p. 86).
In short, information is a flow of messages, while
knowledge is created and organized by the very flow of
information, anchored on the commitment and beliefs
of its holder. This understanding emphasizes an essential aspect of knowledge that relates to human action.
15
IKUJIRO NONAKA
Dynamic Theoryof Organizational Knowledge Creation
The importance of knowledge related to action has
been recognized in the area of artificial intelligence.
For example, Gruber (1989) addresses the subject of an
expert's "strategic knowledge" as that which directly
guides his action, and attempts to develop the tools to
acquire it. Since the 1980s, the development of cognitive science has been based on a serious reflection on
behavioralist psychology's neglect of such traditional
questions as, 'Why do human beings act in a certain
way?', which was a central issue for so-called "folk
psychology" (Stich 1986). Searle's discussion on the
"speech act" also points out a close relationship between language and human action in terms of the
"intention" and "commitment" of speakers (Searle
1969). In sum, as a fundamental basis for the theory of
organizational creation of knowledge, it can be argued
that attention should be focused on the active, subjective nature of knowledge represented by such terms as
"belief" and "commitment" that are deeply rooted in
the value systems of individuals.
The analysis of knowledge and information does not
stop at this point. Information is a necessary medium
or material for initiating and formalizing knowledge
and can be viewed from "syntactic" and "semantic"
perspectives. The syntactic aspect of information is
illustrated by Shannon's analysis of the volume of information which is measured without regard to its
meaning or value. A telephone bill, for example, is not
calculated on the basis of the content of a conversation
but according to the duration of time and the distance
involved. Shannon said that the semantic aspects of
communication, which center on the meaning of information, are irrelevant to the engineering problem
(Shannon and Weaver 1949). A genuine theory of
information would be a theory about the content of our
messages, not a theory about the form in which this
content is embodied (Dretske 1981).
In terms of creating knowledge, the semantic aspect
of information is more relevant as it focuses on conveyed meaning. The syntactic aspect does not capture
the importance of information in the knowledge creation process. Therefore, any preoccupation with the
formal definition will tend to lead to a disproportionate
emphasis on the role of information processing, which
is insensitive to the creation of organizational knowledge out of the chaotic, equivocal state of information.
Information, seen from the semantic standpoint, literally means that it contains new meaning. As Bateson
(1979, p. 5) put it, "information consists of differences
that make a difference." This insight provides a new
point of view for interpreting events that make previously invisible connections or ideas obvious or shed
16
light on unexpected connections (Miyazaki and Ueno
1985). For the purposes of building a theory of knowledge creation, it is important to concentrate on the
semantic aspects of information.
2.2. Two Dimensions of KnowledgeCreation
Although a great deal has been written about the
importance of knowledge in management, relatively
little attention has been paid to how knowledge is
created and how the knowledge creation process can
be managed. One dimension of this knowledge creation process can be drawn from a distinction between
two types of knowledge-"tacit knowledge" and explicit knowledge." As Michael Polanyi (1966, p. 4) put
it, "We can know more than we can tell".3 Knowledge
that can be expressed in words and numbers only
represents the tip of the iceberg of the entire body of
possible knowledge. Polanyi classified human knowledge into two categories. "Explicit" or codified knowledge refers to knowledge that is transmittable in formal, systematic language. On the other hand, "tacit"
knowledge has a personal quality, which makes it hard
to formalize and communicate. Tacit knowledge is
deeply rooted in action, commitment, and involvement
in a specific context. In Polanyi's words, it "indwells"
in a comprehensive cognizance of the human mind and
body.
While Polanyi articulates the contents of tacit knowledge in a philosophical context, it is also possible to
expand his idea in a more practical direction. Tacit
knowledge involves both cognitive and technical elements. The cognitive elements center on what Johnson-Laird (1983) called "mental models" in which human beings form working models of the world by
creating and manipulating analogies in their minds.
These working models include schemata, paradigms,
beliefs, and viewpoints that provide "perspectives" that
help individuals to perceive and define their world. By
contrast, the technical element of tacit knowledge covers concrete know-how, crafts, and skills that apply to
specific contexts. It is important to note here that the
cognitive element of tacit knowledge refers to an individual's images of reality and visions for the future,
that is to say, what is and what ought to be. As will be
discussed later, the articulation of tacit perspectivesin a kind of "mobilization" process-is a key factor in
the creation of new knowledge.
Tacit knowledge is a continuous activity of knowing
and embodies what Bateson (1973) has referred to as
an "analogue" quality. In this context, communication
between individuals may be seen as an analogue pro-
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Dynamic Theoryof Organizational Knowledge Creation
cess that aims to share tacit knowledge to build mutual
understanding. This understanding involves a kind of
"parallel processing" of the complexities of current
issues, as the different dimensions of a problem are
processed simultaneously. By contrast, explicit knowledge is discrete or "digital." It is captured in records of
the past such as libraries, archives, and databases and
is assessed on a sequential basis.
The Ontological Dimension: The Level of Social Interaction. At a fundamental level, knowledge is created
by individuals. An organization cannot create knowledge without individuals. The organization supports
creative individuals or provides a context for such
individuals to create knowledge. Organizational knowledge creation, therefore, should be understood in terms
of a process that "organizationally" amplifies the
knowledge created by individuals, and crystallizes it as
a part of the knowledge network of organization.
In this line, it is possible to distinguish several levels
of social interaction at which the knowledge created by
an individual is transformed and legitimized. In the
first instance, an informal community of social interaction provides an immediate forum for nuturing the
emergent property of knowledge at each level and
developing new ideas. Since this informal community
might span organizational boundaries-for example, to
include suppliers or customers-it is important that
the organization is able to integrate appropriate aspects of emerging knowledge into its strategic development. Thus, the potential contribution of informal
groups to organizational knowledge creation should be
related to more formal notions of a hierarchical structure. If this is done effectively, new knowledge associated with more advantageous organizational processes
or technologies will be able to gain a broader currency
within the organization.
In addition to the creation of knowledge within an
organization, it is also possible that there will be formal
provisions to build knowledge at an interorganizational
level. This might occur if informal communities of
interaction, that span the link between customers, suppliers, distributors, and even competitors, are put on a
more formal basis, for example, through the formation
of alliances or outsourcing.
2.3. Commitment on the Part of the Knowledge Subject:
Intention, Autonomy, and Fluctuation
The prime movers in the process of organizational
knowledge creation are the individual members of an
organization. Individuals are continuously committed
to recreating the world in accordance with their own
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perspectives. As Polanyi noted, "commitment" underlies human knowledge creating activities. Thus, commitment is one of the most important components for
promoting the formation of new knowledge within an
organization. There are three basic factors that induce
individual commitment in an organizational setting:
"intention," and "autonomy," and a certain level of
environmental "fluctuation."
Intention. Intention is concerned with how individuals form their approach to the world and try to make
sense of their environment. It is not simply a state of
mind, but rather what might be called an action-oriented concept. Edmund Husserl (1968) called this attitude on the part of the subject "intentionality." He
denied the existence of "consciousness" per se, which
was generally assumed by psychologists in 19th century,
and argued that consciousness arises when a subject
pays attention to an object. In other words, any consciousness is a 'consciousness of something.' It arises,
endures, and disappears with a subject's commitment
to an object.
Eigen (1971) argued, in his evolutionary theory, that
evolution involves the process of acquiring environmental information for better adaptation. Eigen insisted that the degree of meaningfulness of information, or a value parameter, needs to be introduced to
explain this system. Human beings, as organic systems,
derive meaning from the environment which is based
on their ultimate pursuit of survival (Shimizu 1978).
Man cannot grasp the meaning of information about
his environment without some frame of value judgment.
The meaning of information differs according to
what a particular system aims to do (manifest purpose
or problem consciousness) and the broader environment in which that system exits (context). It is more
concerned with the system's future aspirations than its
current state. Weick (1979) explains this "self-fulfilling
prophecy" of a system as the "enactment" of the
environment, which may be a projection of its strong
will for self-actualization. While mechanistic information-processing models treat the mind as a fixed capacity device for converting meaningless information into
conscious perception, in reality cognition is the activity
of knowing and understanding as it occurs in the
context of purposeful activity (Neisser 1976). Intention
becomes apparent against this background. Without
intention, it would be impossible to judge the value of
the information or knowledge perceived or created.
"The intentionality of the mind not only creates the
possibility of meaning, but also limits its form" (Searle
1983, p. 166).
17
IKUJIRO NONAKA
Dynamic Theory of Organizational Knowledge Creation
Autonomy. The principle of autonomy can be applied at the individual, group, and organizational levels
-either separately or all together. However, the individual is a convenient starting point for analysis. Individuals within the organization may have different
intentions. Every individual has his or her own personality. By allowing people to act autonomously, the
organization may increase the possibility of introducing
unexpected opportunities of the type that are sometimes associated with the so-called "garbage can"
metaphor (Cohen et al. 1972). From the standpoint of
creating knowledge, such an organization is more likely
to maintain greater flexibility in acquiring, relating, and
interpreting information. In a system where the autonomy of individuals is assured, or where only "minimum
critical specification" (Morgan 1986) is intended, it is
possible to establish a basis for self-organization.
Individual autonomy widens the possibility that individuals will motivate themselves to form new knowledge. Self-motivation based on deep emotions, for example, in the poet's creation of new expressions, serves
as a driving force for the creation of metaphors. A
sense of purpose and autonomy becomes important as
an organizational context. Purpose serves as the basis
of conceptualization. Autonomy gives individuals freedom to absorb knowledge.
Fluctuation. Even though intention is internal to
the individual, knowledge creation at the individual
level involves continuous interaction with the external
world. In this connection, chaos or discontinuity can
generate new patterns of interaction between individuals and their environment. Individuals recreate their
own systems of knowledge to take account of ambiguity, redundancy, noise, or randomness generated from
the organization and its environment. These fluctuations differ from complete disorder and are characterized by "order without recursiveness"-which represents an order where the pattern is hard to predict in
the beginning (Gleick 1987).
Winograd and Flores (1986) emphasize the role of
periodic "breakdowns" in human perception. Breakdown refers to the interruption of an individual's habitual, comfortable 'state-of-being.' When breakdowns
occur, individuals question the value of habits and
routine tools, which might lead to a realignment of
commitments. Environmental fluctuation often triggers
this breakdown. When people face such a breakdown
or contradiction, they have an opportunity to reconsider their fundamental thinking and perspectives. In
other words, they begin to question the validity of basic
attitudes toward the world. This process necessarily
18
involves deep personal commitment by the individual
and is similar in context to Piaget's (1974) observations
about the importance of the role of contradiction in
the interaction between the subject and its environment in such a way that the subject forms perceptions
through behavior.
2.4. KnowledgeConversion and the Spiral of Knowledge
It is now possible to bring together the epistemological
and ontological dimensions of knowledge creation to
form a "spiral" model for the processes involved. This
involves identifying four different patterns of interaction between tacit and explicit knowledge. These patterns represent ways in which existing knowledge can
be "converted" into new knowledge. Social interaction
between individuals then provides an ontological dimension to the expansion of knowledge.
The idea of "knowledge conversion" may be traced
from Anderson's ACT model (Anderson 1983) developed in cognitive psychology. In the ACT model,
knowledge is divided into "declarative knowledge" (actual knowledge) that is expressed in the form of propositions and "procedural knowledge" (methodological
knowledge) which is used in such activities as remembering how to ride a bicycle or play the piano. In the
context of the present discussion, the former might
approximate to explicit knowledge and the latter to
tacit knowledge. Anderson's model hypothesizes that
declarative knowledge has to be transformed into procedural knowledge in order for cognitive skills to develop. This hypothesis is consistent with Ryle's classification (1949) of knowledge into categories of knowing
that something "exists" and knowing "how" it operates. Anderson's categorization can be regarded as a
more sophisticated version of Ryle's classification. One
limitation of the ACT model is the hypothesis that
transformation of knowledge is unidirectional and only
involves transformations from declarative to procedural knowledge, while it can be argued that transformation is bidirectional. This may be because the ACT
model is more concerned with maturation than with
the creation of knowledge.
Four Modes of Knowledge Conversion. The assumption that knowledge is created through conversion
between tacit and explicit knowledge allows us to postulate four different "modes" of knowledge conversion:
(1) from tacit knowledge to tacit knowledge, (2) from
explicit knowledge to explicit knowledge, (3) from tacit
knowledge to explicit knowledge, and (4) from explicit
knowledge to tacit knowledge.
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Dynamic Theoryof Organizational Knowledge Creation
First, there is a mode of knowledge conversion that
enables us to convert tacit knowledge through interaction between individuals. One important point to note
here is that an individual can acquire tacit knowledge
without language. Apprentices work with their mentors
and learn craftsmanship not through language but by
observation, imitation, and practice. In a business setting, on-the-job training (OJT) uses the same principle.
The key to acquiring tacit knowledge is experience.
Without some form of shared experience, it is extremely difficult for people to share each others' thinking processes. The mere transfer of information will
often make little sense if it is abstracted from embedded emotions and nuanced contexts that are associated
with shared experiences. This process of creating tacit
knowledge through shared experience will be called
"socialization."
The second mode of knowledge conversion involves
the use of social processes to combine different bodies
of explicit knowledge held by individuals. Individuals
exchange and combine knowledge through such exchange mechanisms as meetings and telephone conversations. The reconfiguring of existing information
through the sorting, adding, recategorizing, and recontextualizing of explicit knowledge can lead to new
knowledge. Modern computer systems provide a
graphic example. This process of creating explicit
knowledge from explicit knowledge is referred to as
"combination."
The third and fourth modes of knowledge conversion
relate to patterns of conversion involving both tacit and
explicit knowledge. These conversion modes capture
the idea that tacit and explicit knowledge are complementary and can expand over time through a process
of mutual interaction. This interaction involves two
different operations. One is the conversion of tacit
knowledge into explicit knowledge, which will be called
"externalization." The other is the conversion of explicit knowledge into tacit knowledge, which bears some
similarity to the traditional notion of "learning" and
will be referred to here as "internalization." As will be
discussed later, "metaphor" plays an important role in
the externalization process, and "action" is deeply related to the internalization process. Figure 1 illustrates
the four modes of knowledge conversion.
Three of the four types of knowledge conversionsocialization, combination, and internalization, have
partial analogs with aspects of organizational theory.
For example, socialization is connected with theories of
organizational culture, while combination is rooted in
information processing and internalization has associations with organizational learning. By contrast, the
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Figure 1
Modes of the Knowledge Creation
Tacit knowledge
knowledge
Socialization
TO
Explicit knowledge
Externalization
From
Explicit
knowledge
Intemnalization
Combination
concept of externalization is not well developed. The
limited analysis that does exist is from the point of view
of information creation (see Nonaka 1987).
Theories of organizational learning do not address
the critical notion of externalization, and have paid
little attention to the importance of socialization even
though there has been an accumulation of research
on "modeling" behavior in learning psychology. Another difficulty relates to the concepts of "double-loop
learning" (Argyris and Schon 1978) or "unlearning"
(Hedberg 1981), which arises from a strong orientation
toward organization development (OD). Since the first
integrated theory of organizational learning presented
by Argyris and Schon, it has been widely assumed,
implicitly or explicitly, that double-loop learning, i.e.,
the questioning and reconstruction of existing perspectives, interpretation frameworks, or decision premises,
can be very difficult for organizations to implement by
themselves. In order to overcome this difficulty, they
argue that some kind of artificial intervention such as
the use of organizational development programs is
required. The limitation of this argument is that it
assumes implicitly that someone inside or outside an
organization knows "objectively" the right time and
method for putting double-loop learning into practice.
A mechanistic view of the organization lies behind this
assumption. Seen from the vantage point of organizational knowledge creation, on the contrary, double-loop
learning is not a special, difficult task but a daily
activity for the organization. Organizations continuously create new knowledge by reconstructing existing
perspectives, frameworks, or premises on a day-to-day
basis. In other words, double-loop learning ability is
"built into" the knowledge creating model, thereby
circumventing the need to make unrealistic assumptions about the existence of a "right" answer.
19
IKUJIRO NONAKA Dynamic Theoryof OrganizationalKnowledge Creation
Modal Shift and Spiral of Knowledge. While each of
the four modes of knowledge conversion can create
new knowledge independently, the central theme of
the model of organizational knowledge creation proposed here hinges on a dynamic interaction between
the different modes of knowledge conversion. That is
to say, knowledge creation centers on the building of
both tacit and explicit knowledge and, more importantly, on the interchange between these two aspects of
knowledge through internalization and externalization.
A failure to build a dialogue between tacit and
explicit knowledge can cause problems. For example,
both pure combination and socialization have demerits.
A lack of commitment and neglect of the personal
meaning of knowledge might mean that pure combination becomes a superficial interpretation of existing
knowledge, which has little to do with here-and-now
reality. It may also fail to crystallize or embody knowledge in a form that is concrete enough to facilitate
further knowledge creation in a wider social context.
The "sharability" of knowledge created by pure socialization may be limited and, as a result, difficult to apply
in fields beyond the specific context in which it was
created.
Organizational knowledge creation, as distinct from
individual knowledge creation, takes place when all
four modes of knowledge creation are "organizationally" managed to form a continual cycle. This cycle is
shaped by a series of shifts between different modes of
knowledge conversion. There are various "triggers"
that induce these shifts between different modes of
knowledge conversion. First, the socialization mode
usually starts with the building of a "team" or "field"
of interaction. This field facilitates the sharing of members' experiences and perspectives. Second, the externalization mode is triggered by successive rounds of
meaningful "dialogue." In this dialogue, the sophisticated use of "metaphors" can be used to enable team
members to articulate their own perspectives, and
thereby reveal hidden tacit knowledge that is otherwise
hard to communicate. Concepts formed by teams can
be combined with existing data and external knowledge
in a search of more concrete and sharable specifications. This combination mode is facilitated by such
triggers as "coordination" between team members and
other sections of the organization and the "documentation" of existing knowledge. Through an iterative process of trial and error, concepts are articulated and
developed until they emerge in a concrete form. This
''experimentation" can trigger internalization through
a process of "learning by doing." Participants in a
"field" of action share explicit knowledge that is gradu-
20
Figure 2
Spiral of Organizational Knowledge Creation
Epistemologial
dimension
Extemwalization
*------1-----|q;Combination
Explicit
knowledge
I '
.
Ta t
knowledge.
n
eI
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
- .- - -
a
Socializa ntocn
In
tetnd
Individual
the
Group
pracicalbeneitsfthtknwledecetersnKnowledge
Organizaeon
level
a
alization
Inter-organizacion
Ontological
dimension
t
ally translated, through interaction and a process of
trial-and-error, into different aspects of tacit knowledge.
While tacit knowledge held by individuals may lie at
the heart of the knowledge creating process, realizing
the practical benefits of that knowledge centers on its
externalization and amplification through dynamic interactions between all four modes of knowledge conversion. Tacit knowledge is thus mobilized through a
dynamic "entangling" of the different modes of knowledge conversion in a process which will be referred to
as a "spiral" model of knowledge creation, illustrated
in Figure 2. The interactions between tacit knowledge
and explicit knowledge will tend to become larger in
scale and faster in speed as more actors in and around
the organization become involved. Thus, organizational
knowledge creation can be viewed as an upward spiral
process, starting at the individual level moving up to
the collective (group) level, and then to the organizational level, sometimes reaching out to the interorganizational level.
2.5. From Metaphor to Model: Methodology
of KnowledgeCreation
Before concluding this presentation of the basic constructs of the theory, it is helpful to consider some
general principles for facilitating the management of
knowledge conversion. One effective method of converting tacit knowledge into explicit knowledge is the
use of metaphor. As Nisbet (1969, p. 5) noted, "(m)uch
of what Michael Polanyi has called 'tacit knowledge' is
expressible-in so far as it is expressible at all-in
metaphor." "The essence of metaphor is understanding and experiencing one kind of thing in terms of
another (Lakoff and Johnson 1980, p. 5)." Even though
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the metaphor is not in itself a thinking process, it
enables us to experience a new behavior by making
inferences from the model of another behavior. The
use of metaphor is broader than the traditional, lexical
definition of the term (meta = change; phor = move).
According to Lakoff and Johnson: "metaphor is pervasive in everyday life, not just in language but in thought
and action. Our ordinary conceptual system, in terms
of which we both think and act, is fundamentally
metaphorical in nature" (Lakoff and Johnson 1980,
p. 3).
As a method of perception, metaphor depends on
imagination and intuitive learning through symbols,
rather than on the analysis or synthesis of common
attributes shared by associated things. Rosch (1973)
suggested that man describes the world, not in the
formal attributes of concepts, but in terms of prototypes. For example, the robin could be seen as a better
prototype than the turkey for a small bird. Prototypes
provide a mechanism for recognizing the maximum
level of information with a minimum of energy.
Metaphor is not merely the first step in transforming
tacit knowledge into explicit knowledge; it constitutes
an important method of creating a network of concepts
which can help to generate knowledge about the future
by using existing knowledge. Metaphor may be defined
as being 'two contradicting concepts incorporated in
one word.' It is a creative, cognitive process which
relates concepts that are far apart in an individual's
memory. While perception through prototype is in
many cases limited to concrete, mundane concepts,
metaphor plays an important role in associating abstract, imaginary concepts. When two concepts are
presented in a metaphor, it is possible not only to think
of their similarity, but also to make comparisons that
discern the degree of imbalance, contradiction or inconsistency involved in their association. The latter
process becomes the basis for creating new meaning.4
According to Bateson (1973) metaphors cut across different contexts and thus allow imaginative perceptions
to combine with literal levels of cognitive activities.
This experience, he further argues, will promote the
type of "presupposition-negation" learning that is
closely related with the formation of new paradigms.
Contradictions incorporated in metaphor may be
harmonized through the use of analogies. Analogy
reduces ambiguity by highlighting the commonness of
two different things. Metaphor and analogy are often
confused. The association of meanings by metaphor is
mostly driven by intuition, and involves images. On the
other hand, the association of meanings through analogy is more structural/functional and is carried out
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through rational thinking. As such, metaphors provide
much room for free association (discontinuity). Analogy allows the functional operation of new concepts or
systems to be explored by reference to things that are
already understood. In this sense, an analogy-that
enables us to know the future through the presentassumes an intermediate role in bridging the gap between image and logic.
It follows from the preceding discussion that tacit
knowledge may be transformed into explicit knowledge
by (1) recognizing contradictions through metaphor,
and (2) resolving them through analogy. Explicit knowledge represents a model within which contradictions
are resolved and concepts become transferable through
consistent and systematic logic. In the business organization, a typical model is the prototype that represents
the product concept. The prototype's specification is
then explicit knowledge. It has been pointed out that
metaphor, analogy, and model are all part of the
process of scientific discovery.5 Whether the metaphoranalogy-model sequence is indispensable in all such
processes will depend upon the nature of the question
under study; yet in creating new concepts, the model is
usually generated from a metaphor.
3. The Process of Organizational
Knowledge Creation
The theoretical constructs and models described in ?2
may now be related to organizational knowledge creation in a corporate organizational setting. This will be
approached by assessing the processes that enable individual knowledge to be enlarged, amplified, and justified within an organization.
3.1. The Enlargement of an Individual's Knowledge
The prime mover in the process of organizational
knowledge creation is the individual. Individuals accumulate tacit knowledge through direct "hands-on" experience. The quality of that tacit knowledge is influenced by two important factors. One factor is the
"variety" of an individual's experience. If this experience is limited to routine operations, the amount of
tacit knowledge obtained from monotonous and repetitive tasks will tend to decrease over time. Routine
tasks mitigate against creative thinking and the formation of new knowledge. However, increasing the variety
of experience is not sufficient by itself to raise the
quality of tacit knowledge. If the individual finds various experiences to be completely unrelated, there will
be little chance that they can be integrated to create a
new perspective. What matters is "high quality" expe-
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rience which might, on occasion, involve the complete
redefinition of the nature of a "job."
A second factor that determines the quality of tacit
knowledge is "knowledge of experience." The essence
of "knowledge of experience" is an embodiment of
knowledge through a deep personal commitment into
bodily experience. Varela et al. (1991) have pointed out
that the embodied nature of human knowledge has
long been neglected in Western epistemological traditions that have followed from Descartes. They define
embodiment as: "a reflection in which body and mind
have been brought together" (1991, p. 27). Yuasa (1987)
describes this "oneness of body-mind" as the free state
of minimal distance between movement of the mind
and of the body, as for example in the dynamic performance of a master actor on a stage (1987, p. 28). As
Merleau-Ponty (1964) pointed out, bodily experience
plays a critical role in the process of crystallization.
Commitment to bodily experience means an intentional self-involvement in the object and situation which
transcends the subject-object distinction, thereby providing access to "pure experience" (Nishida 1960). This
notion is prevalent in oriental culture. As Yuasa mentions:
One revealing characteristic of the philosophical uniqueness
of Eastern thought is presupposed in the philosophical foundation of the Eastern theories. To put it simply, true knowledge cannot be obtained simply by means of theoretical
thinking, but only through "bodily recognition or realization"
(tainin or taitoku), that is, through the utilization of one's
total mind and body. Simply stated, this is to "learn with the
body" not the brain. Cultivation is a practice that attempts, so
to speak, to achieve true knowledge by means of one's total
mind and body (1987, pp. 25-26).
A good case in point is "on-the-spot-ism" in Japanese
management. In developing the products and identifying the markets, Japanese firms encourage the use of
judgement and knowledge formed through interaction
with customers-and by personal bodily experience
rather than by "objective," scientific conceptualization.
Social interaction between individuals, groups and organizations are fundamental to organizational knowledge creation in Japan. Nevertheless, since this approach uses hands-on experience and action, it sometimes falls in the category of "experiencism" which
neglects the importance of reflection and logical thinking. It tends to overemphasize action and efficiency at
the expense of a search for higher level concepts which
have universal application.
While the concepts of "high-quality experience" and
"knowledge of experience" may be used to raise the
22
quality of tacit knowledge, they have to be counterbalanced by a further approach to knowledge creation
that raises the quality of explicit knowledge. Such an
approach may be called a "knowledge of rationality,"
which describes a rational ability to reflect on experience. Knowledge of rationality is an explicit-knowledge-oriented approach that is dominant in Western
culture. It centers on the "combination" mode of
knowledge conversion, and is effective in creating digital, discrete declarative knowledge. Knowledge of rationality tends to ignore the importance of commitment, and instead centers a reinterpretation of existing
explicit knowledge.
In order to raise the total quality of an individual's
knowledge, the enhancement of tacit knowledge has to
be subjected to a continual interplay with the evolution
of relevant aspects of explicit knowledge. In this connection, Schon (1983) pointed out the importance of
"reflection in action," i.e., reflecting while experiencing. Individual knowledge is enlarged through this interaction between experience and rationality, and
crystallized into a unique perspective original to an
individual. These original perspectives are based on
individual belief and value systems, and will be a
source of varied interpretations of shared experience
with others in the next stage of conceptualization.
3.2. Sharing Tacit Knowledgeand Conceptualization
As we saw in the previous section, the process of
organizational knowledge creation is initiated by the
enlargement of an individual's knowledge within an
organization. The interaction between knowledge of
experience and rationality enables individuals to build
their own perspectives on the world. Yet these perspectives remain personal unless they are articulated
and amplified through social interaction. One way to
implement the management of organizational knowledge creation is to create a "field" or "self-organizing
team" in which individual members collaborate to create a new concept.
In this connection, it is helpful to draw on the
concept of an organization's "mental outlook" as articulated in Sandelands and Stablein's (1987) pioneering
work on "organizational mind." While making caveats
about the dangers of reification and anthropomorphism, these authors use the analogy of "mind" to
identify the process by which organizations form ideas.
Mind is distinct from the brain in the same way that
computer software is distinct from hardware. Against
this background, intelligence may be seen as the ability
to maintain a working similarity between mind and
nature.
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The development of ideas associated with organizational mind requires some form of physical substrate
(i.e. hardware) which Sandelands and Stablein (1987)
argue might be derived from "patterns of behavior
traced by people and machines" (p. 139). Organizational behaviors can convey ideas and, like the firing of
neurons in the brain, may trigger other behaviors and
so form a trace of activation.
In the brain, whether or not one neuron influences another
depends on a complex set of factors having primarily to do
with physical proximity, availability of pathways, intensity of
the electrochemical signal, and whether or not the target
neuron is inhibited by other neurons. Similarly, whether one
behavior influences another in social organizations depends
on a complex of factors primarily concerned with physical
access, lines of communication, power, and competition from
other behaviors. At an abstract formal level, at least, the
politics of the social organization and the physiology of the
brain share much in common (Sandelands and Stablein 1987,
p. 140).
It is human activity that creates organizational mind
as individuals interact and trigger behavior patterns in
others. Managing a self-organizing team involves building an appropriate degree of flexibility into the system
which can accommodate a diversity of imaginative
thinking in the pursuit of new problems and solutions.
Constructinga Field: Building a Self-organizing Team.
To bring personal knowledge into a social context
within which it can be amplified, it is necessary to
have a "field" that provides a place in which individual perspectives are articulated, and conflicts are resolved in the formation of higher-level concepts. Berger
and Luchman (1966) say that reality in everyday life is
socially constructed. Individual behavior ought to be
relativized through an interactive process to construct
"social reality."
In the business organization, the field for interaction
is often provided in the form of an autonomous, selforganizing "team" made of several members coming
from a variety of functional departments. It is a critical
matter for an organization to decide when and how to
establish such a "field" of interaction in which individuals can meet and interact. It defines "true" members
of knowledge creation and thus clarifies the domain in
which perspectives are interacted.
The team needs to be established with regard to the
principles of self-organization. In Lewin's (1951) development of the field theory in social psychology, a group
is defined as "a dynamic whole based on interdepen-
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dence rather on similarity." Some indication of the
number of members and the composition of their background can be achieved using the principle of "requisite variety" (Ashby 1956). According to our observation of successful project teams in Japanese firms, the
appropriate team size may be in the region between 10
and 30 individuals, with an upper limit arising because
direct interaction between all the group members tends
to decrease as group size increases. Within the team,
there.are usually 4 to 5 "core" members who have
career histories that include multiple job functions.
These core members form focal points in the team and
could be seen as the organizational equivalent of the
central element in a series of nested Russian dolls.6
That is to say there is a radial pattern of interaction
with other members, with closer links being associated
with key individuals. Core members play a critical role
in assuring appropriate "redundancy" of information
within the cross-functional team. Other attributes of
members such as formal position, age, gender, etc.
might be determined with regard to Morgan's (1986)
four principles of "learning to learn, requisite variety,
minimum critical specification, and redundancy of
functions."
The span of team activities need not confined to the
narrow boundary of the organization. Rather, it is a
process that frequently makes extensive use of knowledge in environment, especially that of customers and
suppliers. As Norman (1988) argues, the mental outlook of an organization is shaped by a complex pattern
of factors within and outside the organization.7 In
some Japanese firms, for example, suppliers of parts
and components are sometimes involved in the early
stages of the product development. The relationship
between manufacturers and suppliers is less hierarchial
and arms length than in Western countries. Some
other Japanese companies involve customers in the
field of new product planning. In both cases, sharing
tacit knowledge with suppliers or customers through
coexperience and creative dialogue play a critical role
in creating relevant knowledge.
The significance of links between individuals that
span boundaries, both within and outside the organization, has been highlighted by Brown and Duguid's
(1991) revealing insight into the operation of "evolving
communities of practice." These communities reflect
the way in which people actually work as opposed to
the formal job descriptions or task-related procedures
that are specified by the organization. Attempts to
solve practical problems often generate links between
individuals who can provide useful information. The
exchange and development of information within these
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Dynamic Theoryof Organizational Knowledge Creation
evolving communities facilitate knowledge creation by
linking the routine dimensions of day-to-day work to
active learning and innovation. Collaboration to exchange ideas through shared narratives and "war stories" can provide an important platform on which to
construct shared understanding out of conflicting and
confused data.
By contrast with conceptions of groups as bounded
entities within an organization, evolving communities
of practice are "more fluid and interpenetrative than
bounded, often crossing the restrictive boundaries of
the organization to incorporate people from outside"
(Brown and Duguid 1991, p. 49). Moreover, these
communities can provide important contributions to
visions for future development. Thus these communities represent a key dimension to socialization and its
input to the overall knowledge creation process.
The self-organizing team triggers organizational
knowledge creation through two processes. First, it
facilitates the building of mutual trust among members, and accelerates creation of an implicit perspective shared by members as tacit knowledge. The key
factor for this process is sharing experience among
members. Second, the shared implicit perspective is
conceptualized through continuous dialogue among
members. This creative dialogue is realized only when
redundancy of information exists within the team. The
two processes appear simultaneously or alternatively in
the actual process of knowledge creation within a team.
Before discussing these two processes further, it is
necessary to mention another dimension of the knowledge creating process that can be associated with the
self-organizing team. Scheflen (1982) proposed an idea
of "interaction rhythms," in which social interactions
were viewed as being both simultaneous and sequential. The management of interaction rhythms among
team members, i.e., that of divergence and convergence of various interaction rhythms, plays a critical
role in accelerating the knowledge creation process.
Within the team, rhythms of different speed are first
generated and amplified up to certain point of time
and level, and then are given momentum for convergence towards a concept. Therefore, the crucial role of
the team leader concerns how to balance the rhythm of
divergence and convergence in the process of dialogues
and shared experience.
In sum, the cross-functional team in which experience sharing and continuous dialogue are facilitated by
the management of interaction rhythms serves as the
basic building block for structuring the organization
knowledge creation process. The team is different from
a mere group in that it induces self-organizing process
24
of the entire organization through which the knowledge at the group level is elevated to the organizational
level.
Sharing Experience. In order for the self-organizing
team to start the process of concept creation, it first
needs to build mutual trust among members. As we
shall see later, concept creation involves a difficult
process of externalization, i.e., converting tacit knowledge (which by nature is hard to articulate) into an
explicit concept. This challenging task involves repeated, time-consuming dialogue among members.
Mutual trust is an indispensable base for facilitating
this type of constructive "collaboration" (Schrage 1990).
A key way to build mutual trust is to share one's
original experience-the fundamental source of tacit
knowledge. Direct understanding of other individuals
relies on shared experience that enables team members
to "indwell" into others and to grasp their world from
"inside."
Shared experience also facilitates the creation of
'common perspectives" which can be shared by team
members as a part of their respective bodies of tacit
knowledge. The dominant mode of knowledge conversion involved here is socialization. Various forms of
tacit knowledge that are brought into the field by
individual members are converted through coexperience among them to form a common base for understanding.
As was mentioned earlier, tacit knowledge is a distinctly personal concept. Varela et al. (1991) point out
the limitation of the cognitivist view of human experience in comparison with the non-Western philosophical view, and suggest that cognitive experience is "embodied action" rather than a mere representation of a
world that exists independent of our cognitive system.
The mutual conversion of such embodied, tacit knowledge is accelerated by synchronizing both body and
mind in the face of the same experience. Coexperience
with others enables us to transcend the ordinary "IThou" distinction, and opens up the world of common
understanding, which Scheflen (1982) called "Field
Epistemology." Condon (1976) shared this view that
communication is a simultaneous and contextual phenomenon in which people feel a change occurring,
share the same sense of change, and are moved to take
action. In other words, communication is like a wave
that passes through people's bodies and culminates
when everyone synchronizes himself with the wave.
Thus, the sharing of mental and physical rhythm among
participants of a field may serve as the driving force of
socialization.
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Conceptualization. Once mutual trust and a common implicit perspective have been formed through
shared experience, the team needs to articulate the
perspective through continuous dialogues. The dominant mode of knowledge conversion here is externalization. Theories of organizational learning have not
given much attention to this process. Tacit "fieldspecific" perspectives are converted into explicit concepts that can be shared beyond the boundary of the
team. Dialogue directly facilitates this process by activating externalization at individual levels.
Dialogue, in the form of face-to-face communication
between persons, is a process in which one builds
concepts in cooperation with others. It also provides
the opportunity for one's hypothesis or assumption to
be tested. As Markova and Foppa (1990) argue, social
intercourse is one of the most powerful media for
verifying one's own ideas. As such, dialogue has a
congenetic quality, and thus the participants in the
dialogue can engage in the mutual codevelopment of
ideas. As Graumann (1990) points out, dialogue involves "perspective-setting, perspective-taking, and
multiperspectivity of cognition." According to the theory of language action suggested by Austin (1962) and
Searle (1969), illocutionary speech does not only involve a description of things and facts but the taking of
action itself. The expression "language is behavior,"
therefore, implies that language is a socially creative
activity and accordingly reveals the importance of the
connection between language and reality created
through dialogue.
For these purposes, dialectic is a good way of raising
the quality of dialogue. Dialectic allows scope for the
articulation and development of personal theories and
beliefs. Through the use of contradiction and paradox,
dialectic can serve to stimulate creative thinking in the
organization. If the creative function of dialectic is to
be exploited to the full, it is helpful to pay regard to
certain preconditions or "field rules." First, the dialogue should not be single-faceted and deterministic
but temporary and multifaceted so that there is always
room for revision or negation. Second, the participants
in the dialogue should be able to express their own
ideas freely and candidly. Third, negation for the sake
of negation should be discouraged. Constructive criticism substantiated by reasoned arguments should be
used to build a consensus. Fourth, there should be
temporal continuity. Dialectic thinking is a repetitive,
spiral process in which affirmation and negation are
synthesized to form knowledge. Strict and noncontinuous separation of affirmation and negation will only
result in logical contradictions and thus hamper the
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creation of knowledge. Team leaders, therefore, should
not discourage the dramatic and volatile dimensions of
dialogue. If these conditions are met, dialogue will add
much to the potential of the group in knowledge creation.
The process of creating a new perspective through
interpersonal interaction is assisted by the existence of
a degree of redundant information. Making and solving
new problems are made possible when its members
share information by obtaining extra, redundant information which enables them to enter another person's
area and give advice. Instances of "learning by intrusion" (Nonaka 1990) are particularly widespread in
Japanese firms.8 In the meantime, redundancy of information also functions to determine the degree to which
created perspectives are diffused. It may sound paradoxical; yet the degree of information redundancy will
limit the degree of diffusion. In this sense, information
redundancy can serve to regulate the creation of perspectives.
It is now possible to turn to the question of how to
conceptualize new perspectives created from shared
tacit knowledge. According to Bateson (1979), concepts
are created through deduction, induction, and abduction. Abduction has a particular importance in the
conceptualization process. While deduction and induction are vertically-oriented reasoning processes, abduction is a lateral extension of the reasoning process
which centers on the use of metaphors. Deduction and
induction are generally used when a thought or image
involves the revision of a preexisting concept or the
assigning of a new meaning to a concept. When there
is no adequate expression of an image it is necessary to
use abductive methods to create completely new concepts. While analytical methods can be used to generate new concepts via inductive or deductive reasoning,
they may not be sufficient to create more meaningful
-or radical-concepts. At the early stages of information creation, it is very useful to pursue creative dialogues and to share images through the metaphorical
process by merging perspectives, i.e., tacit knowledge.
3.3. Crystallization
The knowledge created in an interactive field by members of a self-organizing team has to be crystallized
into some concrete "form" such as a product or a
system. The central mode of knowledge conversion at
this stage is internalization. Crystallization may then be
seen as the process through which various departments
within the organization test the reality and applicability
of the concept created by the self-organizing team.
These internalization processes are facilitated by en-
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Dynamic Theoryof Organizational Knowledge Creation
couraging experimentation. It should be noted that
because the instrumental skill, a part of tacit knowledge, is exploited in this process, a new process of
knowledge creation is triggered by crystallization. While
this usually leads to refinement of the concept, sometimes the concept itself is abandoned and fundamentally recreated.
The process of crystallization is a social process
which occurs at a collective level. It is realized through
what Haken (1978) called "dynamic cooperative relations" or "synergetics" among various functions and
organizational departments. This relationship tends to
be achieved most effectively when redundancy of information creates scope for critical knowledge conversion
processes to take place. In an organization where there
is redundancy of information, the initiative for action
can be taken by the experts who have more information and knowledge. This characteristic is what
McCulloch (1965) called "the principle of redundancy
of potential command." In this principle, all parts of a
system carry the same degree of importance, and each
part's impact upon the system is determined by the
importance of information it contains in each specified
context. In sum, each part has the potential of becoming the leader of the entire system when there exists
redundancy of information.
The speed at which Japanese firms develop new
products seems to be assisted by information redundancy. In the product development process of Japanese
firms, different phases of the process are loosely linked,
overlapping in part, and the creation and realization of
information is carried out flexibly. The loosely linked
phases, while simultaneously maintaining mutual independence, have redundant information that activates
their interactive inquiry thereby facilitating cyclical
generation and solution of problems (Imai et al. 1985).
This "rugby-style" product development is equipped
with the flexible capability of knowledge conversion.
Clark and Fujimoto (1991) showed that Japanese firms
take relatively less time for product development than
American and European firms.
The specific characteristics of the product development in Japanese firms is its lateral breadth covering
the whole organization. In other words it is overlapping
and synthetic rather than analytic or linear. In this
system, development staff can traverse overlapping
phases and, to a certain extent, share each other's
functions. This is far different from the usual product
development process of U.S. firms, which have definite
partitions between phases over which a baton is relayed. In the Japanese "rugby-style" product development (Takeuchi and Nonaka 1986), staff involved in
26
one phase also may be in the next phase. Thus, some
development staff can be involved in all phases of
development. Sometimes this process also involves
those outside the organization such as suppliers and
customers in order to mobilize and explicit environmental knowledge.
One problem with this developmental style is the
potential risk of confusion if, for example, the design
changes or other alterations take place. Participants
might have to exert more effort to organize the process
due to the lack of strict specifications at each phase
and definite boundaries between them. However, these
risks are counterbalanced by a tendency to create and
realize concepts quickly and flexibly in an integral
fashion. In this context, redundant information can
play a major role in facilitating the process.
3.4. The Justification and Quality of Knowledge
While organizational knowledge creation is a continuous process with no ultimate end, an organization
needs to converge this process at some point in order
to accelerate the sharing of created knowledge beyond
the boundary of the organization for further knowledge
creation. As knowledge is conventionally defined as
"justified true belief," this convergence needs to be
based on the "justification" or truthfulness of concepts. Justification is the process of final convergence
and screening, which determines the extent to which
the knowledge created within the organization is truly
worthwhile for the organization and society. In this
sense, justification determines the "quality" of the created knowledge and involves criteria or "standards"
for judging truthfulness.
What matters here are the evaluation "standards"
for judging truthfulness. In the business organizations,
the standards generally include cost, profit margin, and
the degree to which a product can contribute to the
firm's development. There are also value premises that
transcend factual or pragmatic considerations. These
might be opinions about such things as the extent to
which the knowledge created is consistent with the
organization's vision and perceptions relating to adventure, romanticism, and aesthetics. The inducements to
initiate a convergence of knowledge may be multiple
and qualitative rather than simple and quantitative
standards such as efficiency, cost, and return on investment (ROI).
In knowledge-creating organizations, it is the role of
top or middle management to determine the evaluation
standard. Determining the turning point from dissipation to convergence in the creation process is a highly
strategic task which is influenced by the "aspiration" of
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the leaders of the organization. Justification standards
have to be evaluated in terms of their consistency with
higher-order value systems. The ability of leaders to
maintain continuous self-reflection in a wider perspective is indispensable when it comes to increasing the
quality of knowledge created.
3.5. NetworkingKnowledge
The realization of new concepts, described above, represents a visible emergence of the organization's
knowledge network. During this stage of organizational
knowledge creation, the concept that has been created,
crystallized and justified in the organization is integrated into the organizational knowledge-base which
comprises a whole network of organizational knowledge. The organizational knowledge base is then reorganized through a mutually-inducing process of interaction between the established organizational vision
and the newly-created concept.
Speaking in sociological terms, this mutually-inducing relationship corresponds to the relationship between a grand concept and a middle-range concept. A
middle-range concept is induced from an equivocal
knowledge base as a grand concept and then is condensed into concrete form. The grand concept is not
fully understood at the organizational level unless these
middle-range concepts are verified on site. This verification also induces the creation or reconstruction of a
grand concept, causing the interactive proliferation of
grand concepts presented by top management, and
middle-range concepts created by middle management.
This interaction, mediated by the concrete form as
condensed information, is another dynamic selforganizing activity of knowledge network that continuously creates new information and meaning.
It should be noted that the process of organizational
knowledge creation is a never-ending, circular process
that is not confined to the organization but includes
many interfaces with the environment. At the same
time, the environment is a continual source of stimulation to knowledge creation within the organization. For
example, Hayek (1945) pointed out that the essential
function of market competition is to discover and mobilize knowledge "on-the-spot," i.e., the implicit, context-specific knowledge held by market participants.
In the case of business organizations, one aspect of
the relationship between knowledge creation and the
environment is illustrated by reactions to the product
by customers, competitors, and suppliers. For example,
many dimensions of customer needs take the form of
tacit knowledge that an individual customer or other
market participants cannot articulate by themselves. A
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Figure 3
Organizational Knowledge Creation Process
Enabling Conditions
Intention
Chaos / Fluctuation
Autonomy
Redundancy
Requisite Variety
Conceptualization
Enlarging
individuals --knowledge
Sharing
taclt
Justiiation
Ntokn
knowledge
Crystallization
Process of generating infonnation/knowledge
in the market
product works as a trigger to articulate the tacit knowledge. Customers and other market participants give
meaning to the product by their bodily actions of.
purchasing, adapting, using, or not purchasing. This
mobilization of tacit knowledge of customers and market will be reflected to the organization, and a new
process of organizational knowledge creation is again
initiated.
The total process of organizational knowledge creation is summarized in Figure 3. Even though the
figure is illustrated as a sequential model, the actual
process progresses forming multilayered loops. Respective stages can take place simultaneously, or sometimes
jump forward or backward.
4. Managing the Process
of Organizational Knowledge
Creation: Creative Chaos,
Redundancy, and Requisite Variety
This section draws on preceding arguments in order to
develop a practical perspective on the management of
organizational knowledge creation. Its main purpose is
to complement the aspects of "individual commitment"
to the knowledge creating process (i.e., intention, autonomy, and fluxuation, discussed in ?2.2) with, what
could be seen as, "organization-wide" enabling conditions that promote a more favorable climate for effective knowledge creation9 (see Figure 3). An analysis of
these enabling conditions-creative chaos, redundancy
of information, and requisite variety-is developed below, prior to making specific proposals for two management models: "middle-up-down management" and a
"hypertext" organization. The former model relates to
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management style, while the latter centers on organizational design.
As was mentioned earlier, environmental fluctuation
is one of the three factors that induce individual commitment. At an organizational level, environmental
fluctuation can generate "creative chaos" which triggers the process of organizational knowledge creation.
When the organization faces nonrecursiveness that
cannot be dealt with by existing knowledge, it might try
to create a new order of knowledge by making use of
the fluctuation itself. According to the principle of
"order out of noise" proposed by von Foerster (1984),
the self-organizing system can increase its ability to
survive by purposefully introducing its own noise. In
the context of evolutionary theory, Jantsch (1980) argues:
In contrast to a widely held belief, planning in an evolutionary
spirit therefore does not result in the reduction of uncertainty
and complexity, but in their increase. Uncertainty increases
because the spectrum of options is deliberately widened;
imagination comes into play (1980, p. 267).
This represents a circular process in which chaos is
perceived in its interaction with cosmos and then becomes a cosmos, which in turn produces another chaos.
Creative chaos is generated naturally when the organization faces a real "crisis" such as rapid decline of
performance due to changes in technologies or market
needs, or the realization of a significant competitive
advantage on the part of a rival firm. It can also be
generated intentionally when leaders of an organization try to evoke a "sense of crisis" among organizational members by proposing challenging goals. This
creative chaos increases tension within the organization and focuses attention on forming and solving new
problems. In the information processing paradigm, a
problem is simply given and a solution is reached
through a process of combining relevant information
based on a preset algorithm. But this process ignores
the importance of problem setting-defining the problem to be solved. In reality, problems do not present
themselves as given but instead have to be constructed
from the knowledge available at a certain point in time
and context.
It should be noted, however, that this process takes
place only when organizational members reflect on
their actions. Without reflection, the introduction of
fluctuation tends to produce "destructive" chaos. As
Schon (1983) observed, "When someone reflects while
in action, he becomes a researcher. He is not dependent on the categories of established theory and technique, but constructs a new theory of the unique case"
28
(1983, p. 68). The knowledge-creating organization is
required to institutionalize this reflection-in-action in
its process as well as in its structure to make the chaos
truly "creative."
A second principle for managing organizational
knowledge creation is redundancy. In business organizations, this means the conscious overlapping of company information, business activities, and management
responsibilities. To Western managers, the term "redundancy," with its connotations of unnecessary duplication and waste, may sound unappealing. Nevertheless, redundancy (Landau 1969 and Nonaka 1990) plays
a key role, especially in the process of knowledge
creation at the level of the organization. Redundant
information can be instrumental in speeding up concept creation. A concept that was created by an individual or a group often needs to be shared by other
individuals who may need the concept immediately.
The redundancy of information refers to the existence
of information more than the specific information required immediately by each individual. The sharing of
extra information between individuals promotes the
sharing of individual tacit knowledge. Since members
share overlapping information, they can sense what
others are trying to articulate. Especially in the concept
development stage, it is critical to articulate images
rooted in tracit knowledge. In this situation, individuals
can enter each others' area of operation and can
provide advice. This allows people to provide new
information from new and different perspectives. In
short, redundancy of information brings about "learning by intrusion" into an individual's sphere of perception.
Redundant information can be an instrumental factor in reducing the impact of managerial hierarchy.
That is to say, redundant information provides a vehicle for problem generation and knowledge creation
which follows procedures that are different from those
specified by the "official" organizational structure. This
concept of "nonhierarchy" has been described by
Hedlund (1986) as "heterarchy." The important point
to note is that redundancy of information makes the
interchange between hierarchy and nonhierarchy more
effective in problem solving and knowledge creation. It
enables all members of the organization to participate
in the process on the basis of consensus and equal
preparation. In this sense, redundancy of information
is an indispensable element in inducing the "synergetics" and to realize the "principle of redundancy of
potential command."
Deep, mutual trust between the members of the
organization-the creators of knowledge-can be pro-
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Dynamic Theoryof Organizational Knowledge Creation
moted through information redundancy and, in this
way, the organization can control its knowledge creation. If an organization contains enough redundancy
of information to deal with as many contingencies as
possible, it can generate various combinations of information flexibly. This redundancy also facilitates interaction among organizational members and consequently makes it easier to transfer tacit knowledge
among them. Redundancy can eliminate cheating
among organizational members and facilitates establishment of mutual trust. Williamson (1975) argues
convincingly that opportunism tends to appear less
frequently in internally organized activities than in
market transactions. Close interaction and trust based
upon sharing of redundant information minimizes the
possibility of cheating. Since "trust is a critical lubricant in social systems" (Arrow 1974), it would be
impossible to form "synergetics" needed for knowledge
creation without trust.
Sharing of extra information also helps individuals to
recognize their location in the organization, which in
turn increases the sense of control and direction of
individual thought and behavior. This state is different
from the one in which all members are scattered with
no relationship to each other. Redundancy of information connects individuals and the organization through
information, which converges rather than diffuses.
There are several ways to build redundancy into the
organization. One is to adopt an overlapping approach
and internal competition in product development. As
was stressed in the section on crystallization, Japanese
companies manage product development as an overlapping, "rugby-style" process where different functional divisions work together in a shared division of
labor. Some of them also divide the product-development team into competing groups that develop different approaches to the same project and then argue
over the advantages and disadvantages of their proposals. Internal rivalry encourages the team to look at a
project from a variety of perspectives. Under the guidance of a team leader, the team eventually develops a
common understanding of the "best" approach. In one
sense, such internal competition is wasteful. But when
responsibilities are shared, information proliferates,
and the organization's ability to create and implement
concepts is accelerated.
Another way to build redundancy into an organization is through strategic rotation, especially between
different areas of technology and between functions
such as R&D and marketing. Rotation helps members
of an organization understand the business from a
multiplicity of perspectives. This makes organizational
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knowledge more fluid and easier to put into practice.
Wide access to company information also helps build
redundancy. When information differentials exist,
members of an organization can no longer interact on
equal terms, which hinders the search for different
interpretations of new knowledge.
Since redundancy of information increases the
amount of information to be processed, it is important
to strike a balance between the creation and processing
of information. One way of dealing with this issue is to
determine the appropriate location of information and
knowledge storage within an organization. Ashby (1956)
has suggested the concept of "requisite variety" which
refers to the constructing of information process channels that match the information load imposed by the
environment. According to the principle of requisite
variety, an organization can maximize efficiency by
creating within itself the same degree of diversity as
the diversity it must process. Following Ashby, requisite variety may be seen as the third principle of
organizing knowledge creating activities.
Efficient knowledge creation requires quick inquiry
and preprocessing of existing knowledge and information. Therefore, it is a practical requirement here that
everyone is given access to necessary information with
the minimum number of steps (Numangami et al. 1989).
For this purpose, (1) organizational members should
know who owns what information, and (2) they should
be related to the least number of colleagues so that
they are not loaded with information in the excess of
each one's cognitive capacity.
4.1. Middle-Up-DownManagement:Leadership
for Parallel Process
In earlier work, a new model of management called
"middle-up-down management" was proposed and
contrasted with typical "top-down" management or
"bottom-up" management (Nonaka 1988b). This middle-up-down management model is suitable for promoting the efficient creation of knowledge in business
organizations. The model is based on the principle of
creative chaos, redundancy, and requisite variety mentioned above; much emphasis is placed on the role of
top and middle management for knowledge creation,
which has been almost neglected in traditional accounts of managerial structure.
The essence of a traditional bureaucratic machine is
top-down information processing using division of labor and hierarchy. Top managers create basic managerial concepts (the premises of decision making) and
break them down hierarchically-in terms of objectives
29
IKUJIRO NONAKA
Dynamic Theoryof Organizational Knowledge Creation
and means-so that they can be implemented by subordinates. Top managers' concepts become operational
conditions for middle managers who then decide how
to realize the concepts. Again, middle managers' decisions constitute operational conditions for lower managers who implement their decisions. In consequence,
the organization as a whole executes a huge amount of
work that can never be done by individuals.
If we visualize the dyadic relations between top vs.
middle managers, the middle vs. lower members, an
organization assumes a tree-shaped or pyramidal structure. In this "top-down" model, it is desirable to organize the whole structure in the way it will conform to
the above relations. To clearly break down the endmeans relations, it is necessary to get rid of any ambiguity or equivocality in the concepts held by top managers. In sum, the concepts anchor on the premise that
they only have one meaning. By corollary, the concepts
are also strictly functional and pragmatic. An implicit
assumption behind this traditional model of organization is that information and knowledge are processed
most efficiently in a tree structure. The division of
labor taking place within such a bureaucratic organization is associated with a hierarchical pattern of information processing. Moving from the bottom to the top
of the organization, information is processed selectively
so that people at the peak would get simple, processed
information only. Moving in the reverse direction, on
the other hand, information is processed and transformed from the general to the particular. It is this
deductive transformation that enables human beings
with limited information processing capacity to deal
with a mass of information.
It should be noted that information processing by
middle and lower members in this model is of minor
relevance to knowledge creation. Only top managers
are able and allowed to create information. Moreover,
information created by these top managers exists for
the sole purpose of implementation; therefore it is a
tool rather than a product. On the contrary, in the
bottom-up model, those who create information are
not top managers, but middle and lower managers. In a
typical bottom-up managed company, intracompany
entrepreneurs or "intrapreneurs" (Pinchot 1985) are
fostered and developed by the system. In reality there
are not many larger firms that have bottom-up management style. In this model, top managers remain
sponsors for individual employees who function as intracompany entrepreneurs-including knowledge creation. However, this model is also anchored on the
critical role of the individual as independent, separate
actor as in the top-down model.
30
Unlike the above two models, the middle-up-down
model takes all members as important actors who work
together horizontally and vertically. A major characteristic of the model regarding knowledge creation is the
wide scope of cooperative relationships between top,
middle, and lower managers. No one major department or group of experts has the exclusive responsibility for creating new knowledge.
But this is not to say that there is no differentiation
among roles and responsibilities in this style of management. In the middle-up-down model, top management provides "visions for direction" and also the
deadline by which the visions should be realized. Middle management translates these visions into middlerange visions, which are to be realized in the fields-the
groups. Middle managers create their visions out of
those from top and lower managers and materialize
then vis-a-vis the two levels. In other words, while top
management articulates the dreams of the firm, lower
managers look at the reality. The gap between these
two forms of perspectives is narrowed by and through
middle management. In this sense, it is a leadership
style that facilitates the parallel knowledge creation
process taking place simultaneously at top, middle, and
lower management respectively.
Table 1 summarizes the comparison of the three
models, top-down, bottom-up, and middle-up-down
management, in terms of knowledge creator, resource
allocation, structural characteristics, process characteristics, knowledge accumulation, and inherent limitation. The roles and tasks of lower, top, and middle
managers in the middle-up-down management will now
be discussed in detail.
Frontline employees and lower managers are immersed in the day-to-day details of particular technologies, products, and markets. No one is more expert in
the realities of a company's business than they are.
But, while these employees and lower managers are
deluged with highly specific information, they often
find it extremely difficult to turn that information into
useful knowledge. For one thing, signals from the marketplace can be vague and ambiguous. For another,
employees and lower managers can become so caught
up in their own narrow perspective, that they lose sight
of the broader context. Moveover, even when they try
to develop meaningful ideas and insights, it can still be
difficult to communicate the importance of that information to others. People do not just passively receive
new knowledge; they actively interpret it to fit their
own situation and perspectives. Thus, what makes sense
in one context can change or even lose its meaning
when communicated to people in a different context.
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Table 1
Dynamic Theoryof Organizational Knowledge Creation
A Comparison of Three Management Models
Top-Down
Middle-Up-Down
Bottom-Up
Agent of
Knowledge Creation
top management
self-organizing team (with
middle managers
as team leaders)
entrepreneurial individual
(intrapreneur)
Resource Allocation
hierarchically
from diverse viewpoints
self-organizing principle
Pursued Synergy
"synergy of money"
"synergy of knowledge"
"synergy of people"
Organization
big and powerful hq.
staff use manuals
team-oriented
affiliatedfirms
by intrapreneurs
small hq.
self-organizing
suborganizations
Management
Processes
leaders as commanders
emphasis on
informationprocessing
chaos not allowed
leaders as catalysts
create organizational
knowledge
create/amplify
chaos / noise
leaders as sponsors
create personal
information
chaos/noise premised
Accumulated
Knowledge
explicit
computerized /
documented
explicit and tacit
shared in diverse
forms
tacit incarnated in
individuals
Weakness
high dependency
on top
management
human exhaustion
lack of overall
control of the
organization
time consuming
difficultto
coordinate
individuals
Source: from Nonaka (1988b).
The main job of top and middle managers in the model
of middle-up-down management is to orient this chaotic
situation toward purposeful knowledge creation. These
managers do this by providing their subordinates with a
conceptual framework that helps them make sense of
their own experience.
In both top-down management and bottom-up management, a high degree of emphasis is given to charismatic leadership. By contrast, middle-up-down management views managers as catalysts. In this role as a
"catalyst," top management sets the direction, provides
the field of interaction, selects the participants in the
field, establishes the guidelines and deadlines for projects, and supports the innovation process.
Top management gives voice to a company's future
by articulating metaphors, symbols, and concepts that
orient the knowledge-creating activities of employees.
In other words, they give form to "organizational intention" that is beyond the personal intention of top
management as an individual. This is achieved by asking the questions on behalf of the entire organization:
What are we trying to learn? What do we need to
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know? Where should we be going? Who are we? If the
job of frontline employees and lower managers is to
know "what is,"' then the job of top management is to
know "what ought to be." In other words, the responsibility of top management in middle-up-down management is to articulate the company's "conceptual
umbrella": the grand concepts expressed in highly universal and abstract terms identify the common features
linking seemingly disparate activities or businesses into
a coherent whole. Quinn (1992) called this conceptual
umbrella a "future vision" that gives intellectual members of organizations some challenges for intellectual
growth and develops their capacity for continuous
change.
Another way in which top management provides
employees with a sense of direction is by setting the
standards for justifying the value of knowledge that is
constantly being developed by the organization's members. As earlier comments on the "justification" of
knowledge indicated, deciding which efforts to support
and develop is a highly strategic task. In order to
facilitate organizational knowledge creation, qualitative
31
IKUJIRO NONAKA Dynamic Theoryof Organizational Knowledge Creation
factors such as truthfulness, beauty, or goodness are
equal important to such qualitative, economic factors
as efficiency, cost or ROI.
In addition to the umbrella concepts and qualitative
criteria for justification, top management articulates
concepts in the form of committed, equivocal visions,
which are open-ended and susceptible to a variety of,
and even conflicting, interpretations. If a vision is too
sharply focused, it becomes more akin to an order or
instruction, which will not foster the high degree of
personal commitment. A more equivocal vision gives
employees and self-organizing teams the freedom and
autonomy to set their own goals. The final role of top
management in middle-up-down management is to
clear away any obstacles and prepare the ground for
self-organizing teams headed by middle management.
Knowledge creation, in this type of management, takes
place intensively at the group level, at which middle
managers embody top managers' visions. Middle managers are selected by top management, and therefore
staffing is an important strategic consideration. Top
managers should be able to provide middle managers
with a sense of challenge or crisis and trust them.
As we have seen before, teams play a central role in
the process of organizational knowledge creation. The
main role of middle managers in middle-up-down management is to serve as a team leader who are at the
intersection of the vertical and horizontal flows of
information in the company. The most important
knowledge creating individuals in this model are neither cha:rismatic top managers nor the entrepreneurlike lower managers, but every employee who works in
association with middle managers. It is the middle
manager that takes a strategic position at which he or
she combines strategic, macro, universal information
and hands-on, micro, specific information. They work
as a bridge between the visionary ideals of the top and
the often chaotic reality on the frontline of business.
By creating middle-level business and product concepts, middle managers mediate between "what is"
and "what ought to be." They even remake reality
according to the company's vision.
In addition, middle management forms the strategic
knot that binds the top-down and bottom-up models.
As the self-organizing team, headed by middle management moves up and down the organization, much
redundancy and fluctuation can be created. As such,
the organization with middle-up-down management
naturally has a strong driver of self-reorganization. The
middle management sometimes plays the role of
"change-agent" for the self-revolution of the organization.
32
In sum, middle managers synthesize the tacit knowledge of both frontline employees and top management,
make it explicit, and incorporate it into new technologies and products. They are the true "knowledge engineers" of the knowledge creating organizations.
4.2. HypertextOrganization:A Design Prototype
of a KnowledgeCreating Organization
Finally, an image can be presented of organizational
design that provides a structural base for the process of
organizational knowledge creation. Middle-up-down
management becomes most efficient if supported by
this infrastructure. The central requirement for the
design of the knowledge-creating organization is to
provide the organization with a strategic ability to
acquire, create, exploit, and accumulate new knowledge continuously and repeatedly in a circular process.
Earlier work has described an image of organizational
design equipped with such a dynamic cycle of knowledge under the concept of a "hypertext organization,"
(Nonaka et al. 1992). This term is borrowed from a
concept of computer software where "hypertext" allows users to search large quantities of text, data, and
graphics by means of a friendly interface. It links
related concepts and areas of knowledge to allow a
problem to be viewed from many angles. In many ways,
this is analogous to the ability of individuals to relate
stories in different ways according to the nature of the
audience. The same knowledge might be used but in
different formats, making it easier to draw relationships between different sets of information.
The core feature of the hypertext organization is the
ability to switch between the various "contexts" of
knowledge creation to accommodate changing requirements from situations both inside and outside the
organization. Within the process of organizational
knowledge creation, it is possible to distinguish several
"contexts" of knowledge creation such as the acquisition, generation, exploitation, and accumulation of
knowledge. Each context has a distinctive way of organizing its knowledge creation activities. Nonhierarchical, or "heterarchical" self-organizing activities of
teams are indispensable to generate new knowledge as
well as to acquire "deep" knowledge through intensive,
focused search. On the other hand, a hierarchical
division of labor is more efficient and effective for
implementation, exploitation, and accumulation of new
knowledge as well as acquisition of various information
through extensive, unfocused search.
Hypertext organization design first distinguishes the
normal routine operation conducted by a hierarchical
formal organization from the knowledge creating activ-
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ities carried out by self-organizing teams. But it does
not mean that the two activities need to operate separately and independently. Rather, it stresses the need
for the careful design of the two activities which takes
account of their distinctive contributions to knowledge
creation. The important point to note is that the design
of the hierarchy and self-organizing teams should enable the organization to shift efficiently and effectively
between these two forms of knowledge creation. In
terms of the theory of organizational knowledge creation, while hierarchical formal organization mainly
carries out the task of combination and internalization,
self-organizing teams perform the task of socialization
and externalization. This also improves the ability of an
organization to survive. By establishing the most appropriate organizational setting for the two activities, an
organization can maximize the efficiency of its routine
operation, which is determined by bureaucratic principles of division of labor and specialization, and also the
effectiveness of its knowledge creation activities. In this
type of organization, the knowledge creating activities
of self-organizing teams work as a measure which serves
to prevent the so-called "reverse function of bureaucracy" (Merton 1957).
Thus the hypertext organization combines the efficiency and stability of a hierarchical bureaucratic organization with the dynamism of the flat, cross-functional
task-force organization. Nevertheless, it should be
noted that a critical factor for the design of the hypertext organization lies in the coordination of time, space,
and resources to realize the "requisite variety." Jacques
(1979) pointed out that positions in the hierarchical
organization have responsibility of different time-span.
This implies that the hierarchical organization is a
coordination device for these works of diverse timespan, and generates a "natural frequency" by
"orchestrating" various rhythms. As the previous section indicated, each self-organizing team also creates
its own "natural frequency" by synchronizing various
rhythms brought into the field by members from diverse positions in hierarchical organization. The hypertext organization is an organizational structure that
enables orchestration of different rhythms or "natural
frequency" generated by various project teams and the
hierarchical organization. It coordinates the allocation
of time, space, and resource within the organization so
as to compose an "organizational" rhythm that makes
organizational knowledge creation more effective and
efficient. In this sense, the hypertext organization is a
structural device to build "requisite variety," which
cannot be secured solely by middle-up-down management.
ORGANIZATIONSCIENCE/VO1. 5, No. 1, February 1994
The imageof the hypertextorganizationis illustrated
in Figure 4. It can be visualized as a multilayered
organization comprised of three layers; knowledgebase, business-system,and projectteam. At the bottom
is the "knowledge-base"layer which embraces tacit
knowledge,associatedwith organizationalculture and
procedures,as well as explicitknowledgein the form of
documents,filingsystems,computerizeddatabases,etc.
The function of this archival layer may be seen in
terms of a "corporateuniversity."The second layer is
the "business-system"layer where normal routine operation is carriedout by a formal,hierarchical,bureaucratic organization.The top layer relates to the area
where multiple self-organizingproject teams create
knowledge. These teams are loosely linked to each
other and share in the "joint creation of knowledge"
using "corporatevision."Thus the hypertextorganization takes different "forms," depending on the perspective from which it is observed.
The process of organizationalknowledgecreation is
conceptualizedas a dynamiccycle of knowledge and
informationtraversingthe three layers. Members of
project teams on the top layer are selected from diverse functions and departmentsacross the businesssystem layer. Based on the corporatevision presented
by top management,they engage in knowledgecreating
activities interactingwith other project teams. Once
the task of a team is completed,membersmove"down"
to the knowledge-baselayer at the bottom and make
an "inventory"of the knowledgeacquiredand created
in the project. After categorizing,documenting,and
indexingthe new knowledge,they come back to upper
business-systemlayer and engage in routine operation
until they are called again for another project.A key
design requirementin the hypertextorganizationis to
form such a circularmovementof organizationmembers, who are the fundamentalsource and subject of
organizationalknowledge creation. From the vantage
point of strategicmanagement,the true "core competence" (Prahaladand Hamel 1990)of the organization,
which producessustainablecompetitiveadvantage,lies
in its managementcapabilityto create relevantorganizational knowledge (Nonaka 1989, 1991). This is a
continuousprocess and the abilityto switchswiftlyand
flexiblybetween the three layersin the hypertextorganization is criticalto its success.
5. Conclusion
The theory of organizationalknowledgecreation proposed here has been constructedmainlyon the basis of
hands-onresearchand practicalexperienceof Japanese
33
IKUJIRO NONAKA Dynamic Theoryof Organizational Knowledge Creation
Figure 4
Hypertext Organization -An
Interactive Model of Hierarchy and Nonhierarchy
Project-systemlayc.
.
.
Collaborationamong
projectteamsto promote...
knowledgecreation
Teams are loosely-coupled
.....
......
.~~~~~~~l
x.
/...........
arroundorganizationalvision....
Teammembersforma
hypernetworkacross
business-systems
,........Ll;.
/
/
\
E
I
11
11
.
.
.
Dynamicknowledgecycle
continuouslycreates,
exploitsandaccumulates
organizationalknowledge
b
I
11
11
;
High accessibility to
knowledge-baseby
A
individual
we se e members
e
, , , ,,
1
\~~~~~~~~~~~~~~~~~~~~~~~~~....'.'...'..........
e..~~~~~~~~~~~~~~~~~~~~~~...........................
x
... .
iX
Kno\wledgeabaselayer
Organizationalvision,
culture,databases,etc.
Source:Nonaka,Konno,Tokuoka,andKawamura(1992).
firms. Nevertheless, it should be stressed that the principles described have a more general application to any
organization, either economic or social, private or public, manufacturing or service, in the coming age despite
their field of activities as well as geographical and
cultural location. The theory explains how knowledge
held by individuals, organizations, and societies can be
simultaneously enlarged and enriched through the spiral, interactive amplification of tacit and explicit knowledge held by individuals, organizations, and societies.
The key for this synergetic expansion of knowledge is
joint creation of knowledge by individuals and organizations. In this sense, the theory of organizational
knowledge creation is at the same time a basic theory
for building a truly "humanistic" knowledge society
beyond the limitations of mere "economic rationality."
Organizations play a critical role in mobilizing tacit
knowledge held by individuals and provide the forum
for a "spiral of knowledge" creation through socialization, combination, externalization, and internalization.
All of these conversion modes interact in a dynamic
and continuous "entanglement" to drive the knowl-
34
edge creation process. These modes operate in the
context of an organization and, while acknowledging
the role of individuals as essential actors in creating
new knowledge, the central theme of this paper has
been to address the processes involved at an organizational level.
By concentrating on the concept of organizational
knowledge creation, it has been possible to develop a
perspective which goes beyond straightforward notions
of "organizational learning." In the language of the
present discussion, learning can be related to "internalization" which is but one of the four modes of
conversion required to create new organizational
knowledge. Taken by itself, learning has rather limited,
static connotations whereas organizational knowledge
creation is a more wide-ranging and dynamic concept.
Finally, hypertext and middle-up-down management
have been offered as practical proposals for implementing more effective knowledge creation. As knowledge emerges as an ever more important feature of
advanced industrial development, it is necessary to pay
increased attention to the processes by which it is
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IKUJIRO NONAKA
Dynamic Theoryof Organizational Knowledge Creation
created and the assessment of its quality and value
both to the organization and society.
Acknowledgements
The author would like to thank Arie Y. Lewin, John Seeley Brown,
Takaya Kawamura, doctoral student at Hitotsubashi University, and
Tim Ray for their insightful comments and assistance.
Endnotes
I
See Lewin and Stephens (1992) for arguments on challenges to and
opportunities for organizational design in the post industrial society.
2
Discussion on epistemology here is based on such classical accounts as Plato's Theaetetus and Phaedo, Descartes's Discourse on
Method, Locke's An Essay Concerning Human Understanding,
Hume's An Enquiry Concerning Human Understanding, and Kant's
Critique of Pure Reason. For interpretation of these works, see
Hospers (1967), Dancy (1985), Hallis (1985), Moser and Nat (1987),
and Winograd and Flores (1986).
3 See also Polanyi (1958) and Gelwick (1977).
4 Metaphor should not be understood as mere rhetoric or an issue of
expression; it is deeply connected with knowledge creation. For this
point, see Black (1962) and McCormac (1985).
5 For comprehensive discussion on metaphor, analogy, and model,
see Leatherdale (1974) and Tsoukas (1991).
6 The self-organizing team may be depicted by Maturana and
Varela's (1980) concept of an "autopoietic system." Living organic
systems are composed of various organs, which are again composed
of numerous cells. Each unit, like an autonomous cell, is self-regulating. Moreover, each unit determines its boundary through self-reproduction, and is separate from the environment. This self-referential
or self-reflecting nature is a quintessential feature of autopoietic
systems.
7 Gibson (1979) suggested an interesting hypothesis that knowledge
lies in the environment itself, contrary to the traditional epistemological view that it exists inside the human brain. According to him, man
perceives information ("affordance") which natural objects afford to
human cognitive activity, i.e., according the degree of affordance of
the environment. Information on chair, knife, and cliff are revealed
when the actions of sitting, cutting, and falling are made, in other
words, in the course of interactions between the subject and the
object of perception.
8 Jaikumar and Born (1986) pointed to this as the characteristic of
Japanese firms' production methods. According to them, the production method for most American firms is clearly defined as the
function of the basic manufacturing technology, assigned works,
organizational goals, and environment. In this mode of production,
then, workers are well aware of their work and thus simply follow the
routine procedure. On the other hand, Japanese workers do not get
prior knowledge and thus become part of the given work, rather than
being separate from the work itself. Therefore, anomaly, or nonroutine nature, of the work itself becomes an important opportunity for
learning.
9 The development of these concepts are based on a series of
theoretical and empirical research studies (Kagono et al. 1985,
Takeuchi et al. 1986, and Nonaka 1988a).
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